November 19, 2012/ BGL Research
Monetary policy has been operated with a variety of objectives in mind over the years. However, it appears that the objectives generally boil down to adjusting the supply of money in the economy to achieve some combination of inflation control and output stability….
Economic theory and research outcomes have identified a number of ways through which monetary actions are transmitted to the real economy by altering the amount of money in the economy; directly or indirectly. Directly through the sale and purchase of short term government securities in open market operations or indirectly through the use of the short term benchmark interest rate….
Sustained sharp and/or miscalculated monetary policy tightening could push the economy into a recession where consumers tend to cut down on spending to as low as subsistence; business production declines, leading firms to lay off workers and stop investing in new capacity; and foreign appetite for the country’s exports may fall….
We believe that monetary policy has a strong role to play in expanding financial inclusion and ensuring that proper financial intermediation other than securities trading remains the hallmark of the banking system….
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